§ 250.240 - Applicability of section 23A of the Federal Reserve Act to transactions between a member State bank and its “operations subsidiary”.

Link to an amendment published at 67 FR 76622, Dec. 12, 2002.

(a) The Board of Governors has recently considered whether section 23A of the Federal Reserve Act (12 U.S.C. 371c) applies to extensions of credit by a member State bank to its operations subsidiary.

(b) Section 23A imposes limitations (in terms of security and amount) on a federally insured bank's loans to and investments in its affiliates. The principal purpose of section 23A is to safeguard the resources of a bank against misuse for the benefit of organizations under common control with the bank. It was designed to prevent a bank from risking too large an amount in affiliated enterprises and to assure that extensions of credit to affiliates will be repaid—out of marketable collateral, if necessary.

(c) Since 1968 the Board has permitted member banks to establish and own operations subsidiaries—that is, organizations designed to serve, in effect, as separately incorporated departments of the bank, performing, at locations at which the bank is authorized to engage in business, functions that the bank is empowered to perform directly (12 CFR 250.141). Since an operations subsidiary is in effect a part of, and subject to the same restrictions as, its parent bank, there appears to be no reason to limit transactions between the bank and such subsidiary any more than transactions between departments of a bank.

(d) Accordingly, the Board has concluded that a credit transaction by a member State bank with its operations subsidiary (the authority for which is based on the 1968 ruling) is not a “loan or * * * extension of credit” of the kind intended to be restricted and regulated by section 23A and is, therefore, outside the purview of that section.

Effective Date Note:

At 67 FR 76622, Dec. 12, 2002, § 250.240 was removed, effective Apr. 1, 2003.